I sold my long UVXY puts today for a 296.75% annualized return.
music selection: “Knights Of Cydonia” — Muse
weigh-in: 213.8 +0.2 – disappointing result
UVXY is a volatility tracking index that is double leveraged. It tries to mimic the movement in volatility by buying the 14 and 40 day VIX futures and rolling them daily. Contango in the futures markets means that on most days, the fund will sell a cheap asset to buy a more expensive one. This has resulted in a great deal of decay in net asset value and share price over time. Split adjusted, the price has fallen from 2,058,000 to about 20 since 2011. That is not a typo. It is a near sure thing to bet against this dog using long dated out of the money put options. I have never lost money on that trade.
Today, I sold 123 of the (pre-split) 4 strike 19JAN2018 expiry puts for 2.45. I originally purchased them on 22JUL2016 for 2.05. I usually prefer to wait 30 days before rolling the trade but the strike moved into the money so I closed early. The trade was in force for 24 days and yielded 296.75% on an annualized basis. I pocketed 4,920 in profit.
I rolled forward by purchasing 37 contracts of UVXY180119P00013000 for 6.95 a share. I like to go about 30% out of the money on the longest dated expiry available. I’ll be looking to hold 30 days or until the strike moves into the money. Whichever comes first.
Devour your prey raptors!